The state's uncertain budget outlook has prompted Moody's Investor Service to downgrade Arizona's debt outlook to "negative" from "stable."
Moody's, a rating agency, kept the state's overall debt rating at Aa3, which is in the "excellent" category, but cautioned that uncertainty over the looming 2012 fiscal year darkened its view of the state's outlook.
Specifically, the agency cited the loss of federal stimulus dollars, which expire at the June 30 end of this fiscal year, as well as the state's reliance on a Medicaid waiver to balance its budget. There is no guarantee that the waiver, which Gov. Jan Brewer officially requested last month, will be granted. If not, Arizona must find $541 million to balance its 2012 budget, which already faces a projected deficit of $1.1 billion.
Adding to the gloomy outlook is the expiration in June 2014 of the estimated $1 billion a year from a temporary increase in the state's sales tax, Moody's said.
On the upside, it said Arizona's debt level was moderate when compared with other states', although growing.